Cocoa butter prices, bean differentials fall to multiyear lows

Key physical cocoa market prices have tumbled in recent months to their lowest level in years, possibly signalling a further decline in benchmark futures following a three-year rally, industry sources said. The price of cocoa butter, which gives confectionery its melt-in-the-mouth texture, has fallen to 2.15 times cocoa prices on ICE Futures Europe from 2.65 three months ago, the lowest since 2010, said Peter Johnson, vice president of New Jersey-based cocoa trader and processor Transmar Group.
In that period, differentials for beans from top grower Ivory Coast have fallen from a 10 pound premium over London futures to a 100 pound discount, the lowest level since 2006, according to Johnson and several US industry sources. They added that the differential for beans from No 3 grower Indonesia has fallen to $400 under New York prices from $50 under, a four-year low. The declines come just months after surging butter ratios and bean prices forced producers to increase prices and use alternative ingredients.
The price increases have eaten in to consumer demand, and chocolate makers made purchase commitments well into the future this fall due to worries that Ebola's spread in West Africa, which grows 70 percent of the world's cocoa, could disrupt supply. Both factors are harming demand. "The cash market is flush with cocoa," Johnson said. "There's no interest in physical cocoa beans today."
To be sure, supply concerns could support cocoa prices on ICE Futures US, as weaker arrivals at Ivory Coast ports and crop-damaging winds in that country's growing regions could mean lower-than-expected yields. But the drop in physical prices is largely driven by expectations of weaker consumer demand in coming months, as price rises from chocolate makers like Mars and Hershey Co this summer, driven by soaring cocoa bean futures, begin to take effect.
"We're going to have lower demand than has been expected because of the price increases," one US industry source said. Another industry source said the "miserable economy" in Europe is harming chocolate demand in some of the world's largest per-capita consumers. In addition, chocolate makers' unusually high levels of forward coverage as a result of Ebola, which drove cocoa futures to 3-1/2-year highs in late September, are further crimping demand for spot cocoa, Johnson and another US industry source said.